Jarleth Heneghan and Cassandra Byrne deliver an update following the implementation of the EU Mediation Directive and ask what does it mean for CPAs?

Introduction

Mediation has become an increasingly important and relevant mechanism for Irish businesses in resolving disputes. Recent years have seen a drive at EU and national levels to encourage alternative ways of resolving disputes. An alternative to lengthy litigation or arbitration, mediation can offer swift conclusions at lower costs and where selected can be very effective. So what do CPAs need to know about mediation?

Mediation - What, When and Why?

Mediation is an alternative dispute resolution (ADR) option for resolving disputes between two or more parties. A third party neutral acts as a mediator between parties to facilitate negotiation of a dispute. If agreement is reached, a binding settlement agreement can then be completed.

Parties can voluntarily agree to go to mediation or alternatively mediation can be prescribed either by the contract or ordered by the courts. The courts particularly are currently strongly encouraging mediation.

Unlike litigation, mediation aims at a resolution that takes into account everyone's interests. Parties play active roles in crafting their own solution which effectively meets their needs and interests. Parties therefore maintain significant control over the process and retain the right to withdraw from the process at any time.

Advantages of Mediation

Mediation provides greater opportunity for parties to reach mutually satisfactory solutions in a shorter period of time to that of litigation or arbitration. The timing and speed of mediation is effectively determined by the parties. There are particular advantages in attempting mediation early in a dispute, even before formal proceedings, as it is likely to produce better results and less expense for clients. With few exceptions, mediation is a private and confidential process.

However, there are circumstances where mediation may not be appropriate. For instance, mediation is not suitable when parties are trying to enforce judgements or awards or seek injunctive relief. There is also no right of appeal from mediation once a settlement agreement is concluded.

Relevance of Mediation to CPAs

CPAs are often required by parties to either act on their behalf in providing financial information or advice before or during mediation. Given the increased pace of commercial transactions and disputes, clients are demanding faster, more effective and cost efficient dispute resolution options. This is particularly important where parties would want to maintain their long term business relationships.

Given the central role of CPAs in the business process it is essential that they are familiar with both the existence and use of mediation so that they can best advise their clients. In practice, mediation is often the first time parties have an opportunity to identify and crystallise the issues in dispute.

Mediation – How Does it Work?

Parties select a mutually acceptable mediator and an appointment with the mediator is concluded. The mediator, with the parties, decides a date and neutral venue, together with governing procedures for the mediation.

The mediation itself usually lasts a day. Key documents (including the opening statements) are generally exchanged in advance. At the mediation, parties are given an opportunity to present their case and the mediator will then work in private and joint sessions with them to progress and hopefully reach a resolution. The mediator can only act as a facilitator and cannot issue a judgement or award such as those of a court or arbitrator.

If agreement is reached, it is documented and concluded in a settlement agreement which should subsequently be enforceable in court if not observed.

As mediation is typically a confidential process, there is no precedent bank of mediation cases as there are litigation cases (except where referred to the courts).

Latest Developments in Ireland

The European Communities (Mediation) Regulations 2011 (SI 209 of 2011) published in May 2011 by the Department of Justice and Equality is the latest Irish development in the area of mediation. This transposes to Irish law the EU Mediation Directive 2008/52/EC.

Ambit of the Regulations

The Regulations reinforces the right of parties to disputes between businesses within different EU member states to recourse to mediation.

The Regulations differ in approach from that proposed by the draft Mediation and Conciliation Bill 2010 proposed by the Law Reform Commission in their paper on Alternative Dispute Resolution: Mediation and Conciliation: November 2010, which had a much wider ambit.

The Regulations implemented the Directive within the EU timelines. EU member states (except Denmark, which opted out) had until 21 May 2011 to implement the new rules into national law.

Right to Mediation in a Dispute

The Regulations permit the Courts to invite businesses to use mediation to resolve disputes where the Court considers it appropriate, having regard to all circumstances of the case and with their consent. The parties, by agreement, can also request adjournment of proceedings to explore mediation. Mediation can be considered at any stage of the dispute process.

Where the parties decide to use mediation within the context of a dispute, the Courts may also then make such necessary orders or directions so as to facilitate mediation. Under the Regulations, the Courts may invite the parties to attend information sessions on mediation.

Under the Regulations, businesses remain free to select mediation as one of their preferred options for dispute resolution as part of a stepped dispute resolution clause in a commercial contract.

Enforcement of Mediation Agreements

It is now confirmed that all written mediation agreements can be enforced through application to the Courts. This will apply equally to those mediation agreements that arise during or prior to litigation/arbitration process. The Regulations provide a time limit on applications for enforcement of mediation agreements (six years from the conclusion of the mediation).

Confidentiality

The Regulations also support the principle of confidentiality of mediation, except in specified limited circumstances, such as public policy and where necessary to enforce the mediation agreement.

Compulsory Mediation

The Regulations in Ireland do not make the use of mediation compulsory for resolving disputes between businesses in different member states, as is the case in some other countries such as Italy. However, as can be seen from recent case law in the UK case of Rolf v De Guerin [2011] EWCA Civ 78, parties' refusal to mediate or explore other forms of ADR during litigation may affect award of costs at the end of a case.

In that case, the Court of Appeal decided that "parties should respond favourably to offers to mediate or settle and their conduct in this respect can be taken into account in awarding costs". This was based on the De Guerin's refusal to have a settlement or mediation meeting.

Reference was also made in that case to the UK Jackson Report on the Review of Civil Litigation Costs emphasising the need to mediate generally and particularly on low value construction disputes. This sentiment has been echoed in Ireland's own McCarthy report.

While this case is not binding in Ireland, it will be interesting to see if or how decisions such as Rolf are addressed by the Irish courts and how it will affect businesses in disputes going forward.

Conclusion

CPAs need to have a clear understanding of both the existence and processes of mediation in order to best advise their clients. Businesses can exercise the right to go to mediation at any time in the dispute resolution process. For businesses with contracts with other businesses within the EU, developments such as the Regulations expand the options to resolve a dispute if it arises. With ever increasing focus on saving time, money and maintaining business relationships, continuing developments in mediation, such as the Regulations, are to be welcomed by Irish and EU businesses alike.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.